pay-for-performance programs good for the company or bad for morale?
Somewhere in Corporate America, a human resources manager is tweaking
her company's employee-incentive program. Maybe she's dumping last
year's customized giveaways for this year's weekend getaway packages.
Perhaps she's jettisoning the annual casino-awards party in favor
of discreet distribution of personalized thank-you cards. What drives
her is the theory that rewards and bonuses motivate employees to
do their jobs better.
Still, it's only a theory -- and one that a number of CEOs and human
resources managers believe is no more valid than the notion that
dispensing food to a rooster every time he pecks the piano guarantees
he'll soon play Beethoven. In fact, no one out there really knows
if incentive programs truly work, and a number of you are convinced
they can cause significant harm.
Are incentive programs good for the company or bad for morale? It
depends on whether the rewards help support corporate goals, such
as increased profit and customer loyalty, or if they merely engender
unhealthy competitiveness and back-stabbing among employees.
Seven years ago, CEO and president Rob Rodin eliminated all individual
incentives for the 1,800 employees at Marshall Industries, an El
Monte, California-based distributor of electronic components. To
your average outsider, this may have seemed like a greatway to cripple
an entire workforce -- take away the American Express certificates
and Alaskan cruises and motivation drops faster than a helium balloon
rises. After all, who wants to slog away at work if there's no food
in the dispenser?
Rodin analyzed the five-year earning potential of each employee,
concocted a formula, then went person-by-person and assigned salaries.
Profit-sharing potential was set at the same percentage figure for
each employee, regardless of salary, based on the company's overall
performance. "It wasn't as if we imposed communism," Rodin
says, "but our company was divided by internal promotions and
contests. We weren't working together with a common vision. Managers
were fighting over the cost of a new computer because no one wanted
to put it on his P&L, and departments were pushing costs from
one quarter into the next to make budget. Fundamentally, we eliminated
these distractions. Now we have collaboration and cooperation among
sales people, and between divisions and departments."
And, he says, productivity per person has almost tripled.
Last year in Portland, Oregon, president and CEO Mary Roberts discontinued
a bonus program for the 200 employees at
Rejuvenation Inc., a company that manufacturers decorative brass
lighting fixtures. The manufacturing managers, Roberts
maintains, begged her to discontinue the program because craftsmen
were stealing parts from other craftsmen to meet quotas, and workers
were pacing the production of fixtures to gobble up overtime, then
working like maniacs to achieve production bonuses.
"Incentive programs create competitiveness, and that's not
necessarily best for a company like ours that's growing," says
Roberts. "I don't think people are motivated by rewards and
bonuses. I think they're motivated because they're excited about
their jobs or because they're doing something that provides a service
to the world."
Then why do so many companies claim otherwise -- that incentive
programs, administered effectively, improve company performance?
"Personal recognition can be more motivational than money,"
asserts Bob Nelson, author of 1001 Ways to Reward Employees (Workman
Publishing, 1994). "You can obtain from your employees any
type of performance or behavior you desire simply by making use
of positive reinforcement."
At Dallas-based Texas Instruments (TI) Incorporated, rewards are
used to foster loyalty. Recruiting and retaining employees is a
nasty battle zone in the competitive semiconductor industry. Therefore,
the company offers a unique and creative compensation package that
includes bonuses as well as non-cash recognition ranging from personalized
plaques to country ranch parties, movie tickets to golf lessons,
team shirts and jackets to footballs and train kits. The number
of TI employee recognitions between 1996 and 1997 jumped 400 percent
from 21,907 to 84,260.
"Our managers wouldn't use a non-cash recognition program if
it didn't bring value to the employees," says Kathy Charlton,
TI's manager of workplace vitality. "We're part of an aggressive
industry. Our people work hard and long hours. Rewards make a difference
in their attitudes and performance. Hey, everyone has a need to
be recognized, and not just once a year when there's a formal review
process. And when recognition is tied to effort, you end up getting
more bang for your buck."
Do rewards undermine corporate goals?
It's wildly unrealistic to assume that all incentive programs work,
or that by taking away individual rewards, productivity per person
will triple. Maybe that's why commissions and bonuses and other
rewards programs seem always half-assembled -- no one has figured
out yet how to devise the perfect system. Even though TI's Charlton
emphatically defends her company's incentive programs, she has never
been able to definitively link motivation and productivity to non-cash
rewards. And although Marshall Industries' CEO Rodin loves to trumpet
his company's new nonincentive system, some naysayers claim that,
for example, salespeople will never perform without commissions.
According to a 1996 survey sponsored jointly by McLean, Virginia-based
Wirthlin Worldwide and O.C. Tanner of Salt Lake City, 78 percent
of CEOs and 58 percent of HR vice presidents say their companies
feature rewards programs recognizing performance or productivity.
Two-thirds of each group report their interest in service awards
is constant, while about one-quarter claim their attraction to such
programs is actually increasing.
"If you want to impact the bottom line, you must invest in
people, and not just with money, but also with recognition rewards,"
says Steven Kimball, director of communications with O.C. Tanner
(a provider, it should be noted, of corporate service/recognition
award programs). "It's a matter of common sense and motivation
theory that has been with us forever that says people work for more
than just a paycheck. That should be proof enough."
However, John Parkington, practice director of organization effectiveness
for the San Francisco office of Watson Wyatt, argues that in the
past two decades, companies focused too much on measuring efficiency
and production. In the process, he says, they weeded out anyone
with entrepreneurial spirit. In other words, if you wanted to speed
up the assembly of, say, brass lighting fixtures, and you weren't
particular about quality, workers could be spurred to meet quotas
by financial incentive. But that's not exactly want employers today
want. These days, they want someone to design software that speeds
up the assembly line.
The new economy demands that employees at every level be creative
problem solvers, and this is where it gets sticky for managers to
design strategies for creating high-performance organizations. "Now
companies are asking themselves: ∆What can we do to reward people
for solving problems, for being innovative and for growing the top
line,'" explains Parkington. "Managers have to be smart
and inventive enough to figure out new ways to reward their employees
for this sort of behavior."
But can you encourage this kind of thinking with team shirts and
train kits? Parkington believes a company that wants people to take
job-related risks must let employees know what's expected of them,
offer them encouragement, provide the resources for innovation and
proffer rewards with perceived value.
Certainly, money isn't the only incentive for people to stay with
a company. In a 1998 "American @ Work" survey conducted
by The Loyalty Institute of Aon Consulting in Chicago, 1,800 employees
ranked pay only 11th as a reason for remaining with an employer,
behind such factors as open communication with managers, ability
to challenge the status quo, and opportunities for personal growth.
Money is especially weak as an incentive when it comes to encouraging
employees to think more creatively.
Be careful not to punish employees with rewards.
Non-cash rewards don't engender increased quality, productivity
or creativity, either, says Alfie Kohn, one of America's leading
thinkers and writers on the subject of money as motivator, and author
of Punished by Rewards (Houghton Mifflin, 1993). He believes rewards
programs can't work because they're based on an inadequate understanding
of human motivation. One of the most thoroughly replicated findings
in social psychology, he points out, is that the more you reward
people for doing something, the more they tend to lose interest
in whatever they did to get the reward. And when interest declines,
so does quality.
"You can get people to do more of something or faster for a
little while if you provide them an appealing reward," says
Kohn. "But no scientific study has ever found a long-term enhancement
of the quality of work as a result of any reward system. Bribes
and threats can get you a short-term effect, but that's it."
Kohn says rewards may actually damage quality and productivity,
and cause employees to lose interest in their jobs. Why?
control behavior through seduction. They're a way for people in
power to manipulate those with less power.
ruin relationships. They emphasize the difference in power between
the person handing out the reward and the personreceiving it.
create competitiveness among employees, undermining collaboration
reduce risk taking, creativity and innovation. People will be
less likely to pursue hunches, fearing such out-of-the-box thinking
may jeopardize their chances for a reward.
ignore reasons. A commission system, for example, may lead a manager
to blame the salesmen when they don't meet quotas, when the real
problem may be packaging or pricing.
typically use a rewards system because it's easy," adds Kohn.
"It doesn't take effort, skill or courage to dangle a doggie
biscuit in front of an employee and say, 'Jump through this hoop
and this will be yours.'"
The bottom line on growing the top line.
Cara Finn is vice president of employee services at Mountain View,
California-based Remedy Corp., a software company that builds and
distributes applications for business processes. To remain competitive
in the hothouse of Silicon Valley, her company during the last four
years has doled out to some 750 employees incentive rewards ranging
from American Express gift certificates to spot bonuses and movie
tickets. Only recently has Finn structured a "quality of life"
program in which employees receive rewards after they've been with
the company three, five or seven years.
"You can't separate longevity from performance," she says.
"If an employee has been with our company for three years,
he's performing." And because Remedy is a publicly-held company,
with the attendant inevitable ups and downs, Finn believes rewards
also help even things out. "We hold tightly to the philosophy
that rewards are good, but they should neither be a deterrent nor
a reason for someone leaving or coming to our company." Instead,
the suggestion coming out of the Chicago-based National Association
of Employee Recognition is to change your corporate culture using
positive reinforcement on a daily basis to transcend those traditional
programs that so often feel manipulative.
Barry LaBov, CEO of the Fort Wayne, Indiana-based LaBov & Beyond,
a marketing communications company, suggests every good human resources
professional find new ways to offer incentive rewards that help
support specific corporate goals. "People are people and they
want to be recognized," he says. "The programs that fail
revolve around rewarding performance that doesn't support company
goals. Improving sales performance, for example, is not enough.
Today you need programs that support such issues as profitability,
loyalty and customer satisfaction. And you have to do it without
alienating other people within the organization."
If you're one of those people who still can't take it as gospel
that the more you reward an employee the more he or she gets innovative
and creative -- because it's not just about the money in the first
place -- then maybe you need to listen to Kohn, who still firmly
believes there's a solution to all the madness surrounding employee
incentive and rewards programs. Sure you can motivate people with
the proverbial carrot and stick, he says, but motivate them to do
what? To work for the long-term interest of the company, or for
some short-term personal goal? "Rewards are a matter of doing
things to employees," he stresses. "The alternative is
working with employees, and that requires a better understanding
of motivation and a transformation in how one looks at management."
Kohn quotes from management theorist Frederick Herzberg, who said:
"∆If you want people motivated to do a good job, give them
a good job to do.'" In other words, create an organization
in which people feel a sense of community, maximize the extent to
which employees are brought in on decisions large and small, and
"dump your company's rewards program," adds Kohn. "You
need to pay your employees well, pay them fairly, and do everything
possible to get their minds off money and on work."
Of course, the elimination of commissions and other rewards programs
doesn't guarantee quality. In reality, it takes real talent and
courage to create a workplace in which employees feel important,
where their work matters to them, and where they care about each
other -- with or without an incentive program.
Scott Hays is the department editor for Workforce. E-mail email@example.com
to comment. Workforce, February 1999, Vol. 78, No. 2, pp. 68-73.
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